Buying a new home can be a stressful experience, especially if you’re worrying about how much money you’ll be able to borrow on a home loan. This can make a big difference to what type of accommodation you’ll be able to afford.
It’s a good idea to have some information about what you’re able to borrow before you start house hunting in earnest. If you’re prepared then you’re not going to be disappointed if you fall in love with a property only to later discover you can’t afford to purchase it. You can find out more at NPBS.
Getting pre-approved for a home loan
Pre-approval shouldn’t be confused with pre-qualification. You can often get a pre-qualification amount online and it is based on the basic information that you provide about your financial situation. This is just to give you an idea of what your potential borrowing power is.
Getting pre-approved for a loan requires an application to a loan provider and the provision of information regarding your income, outstanding debts and credit rating. The loan provider will examine your credit report before providing you with details of the amount that you’re provisionally offered as a loan. This helps you to make informed decisions when you’re looking at potential properties.
So what type of information affects the amount I can borrow on a home loan?
A home loan provider wants to minimize the risks involved in lending so they need to examine your ability to pay back the loan. If you apply for pre-approval they will consider the flowing information when deciding on an amount they can offer you.
Obviously no lender is going to let you borrow more than you can afford to pay back from your income; they will take account of other expenditure you may have when making this decision.
- Other debts
Just because you owe money for other credit doesn’t mean that you can’t take out the home loan you need. If your payment history is good then that will show you are a less risky project as long as you have sufficient income coming in to afford additional repayments.
- Credit history
One of the most important factors that a lender will consider is your credit history. If you have struggled with making payments on other credit this may not reflect well. Conversely if you haven’t actually got any credit rating this can have a similarly detrimental effect. This may seem unfair but if you have never taken out credit then there is nothing for a lender to refer to when looking at your reliability in making payments.
Where does the property come into consideration?
Being pre-approved doesn’t always mean that you will get access to the amount of money quoted. Any lender will also want to make sure that there is enough value in the property to mitigate against any future problems with payments. They will not lend more money than the property is worth. Even if your financial circumstances make you a good risk as a borrower, property valuation can be a deciding factor.